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Economic Growth Wedge

According to the US Department of Energy, “economic growth is the most significant factor underlying the projections for growth in energy-related carbon dioxide emissions in the mid-term, as the world continues to rely on fossil fuels for most of its energy use.”[i] This suggests that one way to limit increased greenhouse gas emissions is to directly limit economic growth.

In its report “International Energy Outlook 2009,” the DOE quantifies the impact of various growth rates on carbon emissions out to 2030 as follows: at a high (4%) annual growth rate, energy use and CO2 emissions both increase 1.8% annually; at a medium “reference” (3.5%) annual growth rate, energy use increases 1.5% annually and CO2 emissions increase 1.4% annually; and at a low (3%) annual growth rate, energy use increases 1.2 % annually and CO2 emissions increase 1.0% annually.[ii] The difference between a 3% or 4% annual growth rate adds up to 1.94 billion fewer tons of carbon emitted annually by 2030, or 19% less.

By my calculations, limiting annual world economic growth to 3% rather than 4% over the next fifty years would lead to 73.64 tons less carbon emitted, or almost three carbon reduction wedges.

It seems so straightforward. Economic growth is the primary driver of global climate change. We need to avoid pushing climate change to catastrophic levels. Therefore, we should rein in growth; or, at a minimum, we should consider reining in growth, as one potentially important strategy to mitigate climate change. Yet such ideas are hardly on the radar of most policymakers or environmentalists. Why?

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More than once, economists have asked me “whether I want us all to live in caves” when I’ve suggested that slowing growth might be part of dealing with climate change. Still, once we have the idea that economic growth may be limited to further other important goals, the question becomes: which goals are important enough to trump growth? Preventing global ecological disaster would seem to be a good candidate. Both monetary policy and fiscal policy can be used to ratchet back growth.

Granted there is something odd about saying, “let’s embrace lower rates of wealth creation.” For one thing, it makes hard choices about the fair allocation of resources even harder. For another, you are arguing for putting fewer overall resources at a society’s command, and why would fewer resources be better? Well, here are three reasons why fewer resources might sometimes be better.

First, standard measures of economic growth lump all wealth together under a single monetary metric. But if by increasing overall resources, we lose some resources essential to our survival or wellbeing, we’ve failed, even if the financial balance sheet reads otherwise.[iii]

Second, we arguably also fail if in producing more total wealth, we harm poor people or future generations, or drive other species to extinction, through climate change.. For what profits it a man if he gains the whole world and loses his soul?What profits it this current, wealthy generation of men and women if we beggar our grandchildren, other defenseless people, or nature itself?

Third, perhaps the simplest answer to this question is that fewer resources may be better when a society is so undisciplined, or the resources in question are so dangerous, that its members cannot use more of them without harming themselves or others. As previously with nuclear power, so now with our use of fossil fuels—we are loathe to admit any such limitations, and a single-minded focus on improved technologies and increased efficiency allows us to imagine that they do not exist. Is this wise? After all, GCC is mostly a consequence of humanity using immense amounts of energy, or power. No group of finite beings can be trusted with limitless power, so we should be able to accept the idea of limits to how much power we can safely handle.

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Directly reducing economic growth—by far the leading cause of GCC—is both possible and potentially very effective in reducing greenhouse gas emissions. Like similar efforts to fight inflation, reducing growth to fight GCC could be done in a limited and controlled way. It is telling that such an obvious wedge candidate is almost totally overlooked in analyses of the problem.

To quote once again from the IPCC's 4th Assessment Report: “The challenge – an absolute reduction of global GHG emissions – is daunting. It presupposes a reduction of energy and carbon intensities at a faster rate than income and population growth taken together. Admittedly, there are many possible combinations of the four Kaya identity components, but with the scope and legitimacy of population control subject to ongoing debate, the remaining two technology-oriented factors, energy and carbon intensities, have to bear the main burden.”[iv] While the report’s authors punt on population control, at least they mention it. They don’t even seem aware that we have a choice about whether or not to ease up on the pedal of economic growth. But we do.

GCC should have awoken economists and the rest of us from our dogmatic slumbers regarding the goodness of maximal growth and the sustainability of endless growth.As Tim Jackson writes in a recent report to the European Union Sustainable Development Commission, Prosperity without Growth? The Transition to a Sustainable Economy: “The truth is that there is as yet no credible, socially just, ecologically-sustainable scenario of continually growing incomes for a world of nine billion people. In this context, simplistic assumptions that capitalism’s propensity for efficiency will allow us to stabilize the climate or protect against resource scarcity are nothing short of delusional” (p.57). We can and should work to decouple economic growth from carbon emissions, but to assume we will achieve a complete decoupling anytime soon is irresponsible.

Clearly, we will need a new economic paradigm in order to create sustainable societies. Much good work is being done to specify, generally and in detail, the parameters of a sustainable economy. Valuable contributions worth exploring include Herman Daly and John Cobb, For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future (Boston: Beacon Press, 1989); Paul Hawken, Amory Lovins and Hunter Lovins, Natural Capitalism: Creating the Next Industrial Revolution (Boston: Little Brown, 1999); Robert Lane, The Loss of Happiness in Market Democracies (New Haven: Yale University Press, 2001); Tim Kasser, “Materialism and its Alternatives,” in Mihaly Csikszentmihalyi and Isabella Csikszentmihalyi (eds.), A Life Worth Living: Contributions to Positive Psychology (Oxford: Oxford University Press, 2006), pp. 200-214; Herman Daly, Ecological Economics and Sustainable Development: Selected Essays of Herman Daly (Cheltenham, UK: Edward Elgar, 2007); and Samuel Alexander (ed.), Voluntary Simplicity: The Poetic Alternative to Consumer Culture (Whanganui, New Zealand: Stead & Daughters, 2009).

I do not know whether a truly sustainable economy must be post-growth, slow-growth, no-growth, or something else.I do know that "business as usual" will not work and that those of us seeking solutions to global climate change and the creation of genuinely sustainable socities need to start exploring alternatives to the endless growth economy.

For now, the one point I want to insist on, is the the limited point that reducing (still relatively high) economic growth rates in the near- and mid-term could make a significant contribution to reducing greenhouse gas emissions and avoiding catastrophic GCC. We don’t “all have to live in caves” in order to do that.

[iii] The Millennium Ecosystem Assessment discusses this issue at length. For a recent attempt to specify better measurements of economic and social progress, see Joseph Stiglitz et al., Draft Report (Commission on the Measurement of Economic Performance and Social Progress, 2009).